Jacobs Engineering Group Inc. (NYSE:J) saw significant share price movement during recent months on the NYSE, rising to highs of US$143 and falling to the lows of US$128. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Jacobs Engineering Group's current trading price of US$132 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Jacobs Engineering Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Jacobs Engineering Group still cheap?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 31.13x is currently trading slightly above its industry peers’ ratio of 28.42x, which means if you buy Jacobs Engineering Group today, you’d be paying a relatively reasonable price for it. And if you believe that Jacobs Engineering Group should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. In addition to this, it seems like Jacobs Engineering Group’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.
Can we expect growth from Jacobs Engineering Group?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 93% over the next couple of years, the future seems bright for Jacobs Engineering Group. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has already priced in J’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at J? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?
Are you a potential investor? If you’ve been keeping an eye on J, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for J, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
If you'd like to know more about Jacobs Engineering Group as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Jacobs Engineering Group, and understanding these should be part of your investment process.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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